How are companies currently changing their facilities management delivery model...?

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1 Interserve and Sheffield Hallam University market research 2012

2 Page 2 How are companies currently changing their facilities management delivery model...? we have a strategy to consolidate and improve our sourcing over the next five years we are currently looking at economies of scale of bundled services contracts our next delivery model will likely be with single suppliers and less internal delivery we are intending to consolidate our approach over the next round of procurement

3 Welcome... This survey marks an important inflection point in the industry, a change in thinking that indicates the way outsourcing will evolve over the next few years. The survey results show a discrepancy between the objectives organisations want from facilities management outsourcing and what they are currently achieving. The two over-arching reasons given for this are due to procuring against historic models rather than creating a solution to match future needs, and the renewed focus on cost savings in this current economic climate. However the fact that many respondent organisations are not getting the benefits they expected from outsourcing is disappointing. Although many surveys have told a similar story over the years, what s different this time, is the conclusion buyers are drawing. This conclusion is not to revert to in house services or to reduce contract lengths but in fact the opposite: to move more towards procuring integrated services or a total facilities management solution with a longer term contract. This trend is seen regardless of whether organisations are in the public or private sector. In fact throughout the survey there was little difference in the opinions of public and private sector respondents. When questioned in detail, respondents revealed a very clear understanding of the pros and cons of the different facilities management delivery methods and it was clear that they believed that integrated services and total facilities management are the approaches that most match their objectives for the future. In terms of added value and innovation (72 per cent), improved management information (64 per cent), ability to focus on core business (61 per cent), access to technical expertise (60 per cent), value for money (59 per cent), reduced cost (58 per cent) and service quality (55 per cent); either integrated services or total facilities management are clearly seen as most likely to deliver the best results. In Interserve s view, this represents a new level of maturity and realism in procurement of facilities management. Essentially respondents are saying that the economic and financial constraints are here to stay, there are no more quick wins and that the way forward is to work together more strategically to develop services, if they want to procure a service that will tangibly support their corporate needs. Bruce Melizan Executive Director, Interserve

4 Page 4 Executive Summary This report presents the findings of a survey undertaken by the Centre for Facilities Management Development at Sheffield Hallam University, on behalf of Interserve, into facilities management service delivery. It looks at the current facilities service procurement models, the drivers and benefits of outsourcing and how procurement models is changing and adapting to meet future needs. The key findings are: 49 per cent of respondents are from large organisations (between 1,000 and 9,999 employees) with facilities management budgets of less than 5 million. 79 per cent of respondents have a combined, in-house / outsourcing, service model. 34 per cent of participating organisations outsource over half their facilities management services, whilst 38 per cent (the majority) of respondents outsource between per cent of their facilities services. 73 per cent have five or more years experience of outsourcing. Cost is the most important consideration when outsourcing, often at the detriment of quality; whilst sustainability and innovation are important but often not high on the agenda of organisational goals. Outsourcing is seen as better at delivering risk transfer, technical expertise and a focus on the core business than financial savings or service level improvements - the two main reasons to outsource. Short-term contracts have more disadvantages and less advantages than long-term contracts. Large organisations place more importance on improved management information, communication and flexibility in service delivery than small and medium sized organisations who place an emphasis on reduced cost and the ability to focus on core business.

5 Page 5 Main objectives when outsourcing: financial savings, service level improvements, better technical expertise and transfer of risk. Most important aspects of service delivery: service quality, value for money, reducing cost and communication. Key considerations in a service partner: proven track record, financially stable, partnership approach and compatible culture. Main benefits of each facilities service delivery model: Service quality Communication In-house Development of facilities management team Single service Improved management information Value for money Flexibility of service delivery Integrated services Reduced costs Management of risk Access to technical expertise Improved management information Facilities Management Ability to focus on core business Improved management information Value for money Value for money I think we have to reconsider the way we procure it in the first place so that we re not looking at the purely financial aspect of the cheapest provider; we re looking at the one who can provide the best overall service delivery It s getting that message across that saving 50p an hour isn t necessarily the best way forward.

6 Page 6 Background to respondent organisations Nearly half the respondents (49 per cent) came from large organisations with between 1,000 and 9,999 employees. 20 per cent were from medium sized organisations ( employees), 18 per cent from small (less than 250 employs) and 12 per cent from very large (over 10,000 employees). Nearly half (48 per cent) have annual revenue budgets of less than 5 million, 41 per cent have budgets between 6 million and 50 million and 11 per cent had budgets over 50 million. The two most popular forms of service delivery are a combination of in-house and outsourcing, either through single contracts or bundled with multiple suppliers; these account for 76 per cent of respondents. Delivery models did not appear influenced by organisational size however the use of all in-house models tended to increase with organisation size. Only 34 per cent of participating organisations outsourced over half their facilities management services. The most common percent of services to outsource is between 26 and 50 per cent, which accounted for 38 per cent of respondents. Nearly half (48 per cent) of respondent organisations have outsourced for over 10 years. A further 25 per cent have been outsourcing for 5-10 years and only 6 per cent outsourcing for less than one year.

7 Page 7 Figure One: Area of the organisation where respondents work Figure Two: Respondents role in their organisation

8 Page 8 The outsourcing model Outsourcing levels Figure Three: Percentage of facilities outsourced When asked to what extent organisations currently outsource their facilities services, the most favoured level was between a quarter and a half of their services, with only 11 per cent of respondents outsourcing over three-quarters of their services. Preferred model The most frequently cited form of delivery was a combination of in-house and outsourced services through single contracts (44 per cent). A combination of in-house plus bundled service contracts through multiple suppliers was the second most popular model with 40 per cent of participants reporting this approach. Only 13 per cent reported an all in-house delivery model. Total facilities management with a single supplier was the least frequently reported delivery model. Figure Four: Current Facilities Management Service Delivery Model

9 Page 9 A strategy to consolidate For those delivering a combination Figure Five: Model by organisational size of in-house and either single or integrated contracts, respondents suggested that their current delivery model was under review. For instance one individual responded We have a strategy to consolidate and improve our sourcing over the next few years. Respondent organisations are considering either changing delivery model or increasing the amount of outsourced services, we have to reconsider the way we procure it in the first place so that we re not looking at the purely financial aspect of the cheapest provider; we re looking at the one who can provide the best overall service delivery. This suggests some willingness in the market to adapt existing or adopt new consolidated service delivery models to drive down costs and improve service efficiencies. It also suggests there will be a significant change in the future shape of outsourcing. Routed in the past Of the responses regarding the rationale for adopting particular delivery models, the most significant driver regardless of the model adopted appears to be existing practices set by historical precedents. Half (48 per cent) the organisations have been outsourcing for over ten years, compared to only nine per cent who have been outsourcing for less than three years suggesting that organisations are firmly rooted in historical models of delivery, rather than a solution tailored to their size or estate. It also suggests that the market is reaching maturity. Beyond historical precedents, other reasons mentioned for selecting a preferred service delivery model are: Perceived flexibility engendered by either model Issues of value for money as outsourcing is perceived to provide cost-effectiveness Lack of expert knowledge and technical expertise inhouse therefore specialist services are sought This has not come about from a single strategy. It has been affected by historical precedent A mixed model enables the organisation to retain an element of control of the services

10 Page 10 William Hill Interserve has enabled William Hill to reduce its cleaning bill by 8 million and nearly halved waste sent to landfill, through changes to the company s buying culture. The three-year, 25 million contract is expected to reduce the company s cleaning costs by 8 million (30 per cent) between 2011 and In addition to the cost savings realised, the contract is also meeting William Hill s business needs. For instance in the first year alone there is greater consistency in cleaning standards, a rationalised procurement base, and a 40 per cent rise in recycling. Cleaning practices have also been made more efficient, cutting the number of hours spent, and reducing overall costs for the bookmaker.

11 Page 11 Outsourcing objectives The most frequently selected objectives for outsourcing facilities management activities by respondents are financial savings (83 per cent), service level improvements (64 per cent) and better technical expertise (61 per cent). Figure Six: Motivating objectives for outsourcing Outsourcing provides the mixture of service provision that gives good support without all the overheads of employing all the necessary skills needed to do all the work required Figure Seven reveals how participants ranked their top three objectives. Financial savings were ranked as the number one objective by 58 per cent of respondents and service level improvements as the second most important objective. Although innovation, better technical expertise and focus on core business did not rank in the top three objectives, 52 per cent of respondents chose one of these three options rather than transfer of risk. Across the board better management information was not perceived to be an important element of outsourcing. Figure Seven: Top three objectives for outsourcing

12 Page 12 Delivering objectives Participating organisations perceive their suppliers as being more successful, in practice, at achieving transfer of risk, technical expertise and focus on core business than in delivering financial savings or service level improvements the two most common reasons to outsource. Figure Eight: Motivating versus realised objectives for outsourcing Preferred outsourcing model The primary objectives for outsourcing were broadly similar when taking into account sector and organisation size, as seen in Figure Nine. Innovation in service delivery and better management information do not appear to drive outsourcing activity, especially in small and medium-sized organisations. Instead issues such as financial savings, service level improvements and technical expertise take precedence. Figure Nine: Objectives for outsourcing by company size

13 Page 13 Challenges of outsourcing Qualitative feedback discussed the challenges faced when outsourcing facilities management services are broadly similar across participants: issues with TUPE; resistance from in-house staff and Unions; cost versus quality; amount of work involved in tendering processes. There was frequent mention of participants not being able to find suppliers who are interested in bidding, have the appropriate specialist skills needed and understanding of the culture and needs of the tendering organisation. One challenge of outsourcing is finding suitable contractors with the skills to deliver all aspects of our contract. HSBC In 2009, Interserve started delivering facilities services to HSBC, across the office and retail estate - one of the largest facilities management contracts in the UK. Traditionally HSBC used a variety of approaches to service delivery, from self delivery, to managing agents and single service specialists; all of whom operated to varying standards across the 720,000 square metre portfolio. The solution provided by Interserve, allowed HSBC to both rationalise their in-house team and ensure all services are managed and self-delivered to the highest standards whilst reducing costs from day one. This co-ordinated approach to service has delivered HSBC a significant reduction in costs and improved service levels, whilst delivering consistent and flexible service excellence.

14 Page 14 Differing contract lengths Figure Ten shows that over one-third (39 per cent) of respondent organisations do not use a standard length of contract. The reasons given for this variety included the lack of flexibility in such an approach, the inability to fit with the types of services sought, historical decisions to avoid this type of contract and using various contract lengths to enable competition, through market research and benchmarking. However of the respondents that did report a standard length of contract, 26 per cent of respondent organisations operated on a three-year contract whilst 18 per cent contract for five years or more. This variety in contract length implies that there is still a tendency to operate to bespoke and ad-hoc contracts, rather than procuring to a standardised and easily compared model. Figure Ten: Length of outsourced facilities services contracts Although there is little difference in the benefits of a three year versus a five year contract organisations do note a significant difference between long-term and short-term contracts, albeit long-term contracts are less utilised in the private sector.

15 Page 15 Short term vs long term contracts When considering the advantages and disadvantages of various contract lengths, Figure Eleven shows that organisations perceive there to be more advantages in long-term contracts over short-term contracts, and more disadvantages to short-term contracts than long-term contracts. Long-term contracts help ensure quality in service delivery, strong flexible relationships and value for money, whilst the benefits of short-term contracts are limited to ease in switching providers and reducing risk in procurement. There was no difference in public and private perspectives in this matter. Short-term contracts are believed to lack innovation, are costly to procure, lack commitment and don t deliver real service change, whilst long-term contracts are only limited by a lack of flexibility and complacency. The disadvantages of a long-term contract are easier to mitigate through a good relationship and well-procured model, whilst short-term contracts offer fewer advantages to mitigate the added cost of procuring on a regular basis. Figure Eleven: Short-term versus long-term contract lengths Advantages Disadvantages Short-term contracts Easy to switch provider if KPIs are not met Flexibility Less risk Can be used to test out partnerships Lack of innovation Costly for larger services Difficult to build long term partnerships Cost Lack of commitment to long term goals Frequency of re-tendering process (resource cost) Difficult to embed services Long-term contracts Creates quality in service delivery Helps to build relationships with suppliers Creates value for money Offers stability, continuity and security to service delivery Creates a partnership approach to delivery Long term objectives can be achieved Lack of flexibility Difficult to terminate if poor performance Complacency

16 Page 16 Important aspects of service delivery Consideration is given to the importance of various aspects of facilities management service delivery, key deliverable across different delivery models, judging delivery performance and critical success factors for positive client / provider relationships The most important aspect of facilities management service delivery was reported to be service quality (71 per cent). Other areas such as value for money (65 per cent), communication (55 per cent) and reducing costs (51 per cent) were also considered very important, although by fewer participants. However factors such as improved management, development of the facilities management team and access to technical expertise were only considered important, with focus on core business and added value / innovation ranking at the bottom of this priority listing. Figure Twelve: Importance factors in service delivery Factors ranked as very important Factors ranked as important Key drivers for outsourcing: Financial savings are the most important aspect in procurement and it is often the case that quality of service suffers because of this focus on cost. Responding organisations have had high success rates with outsourcing delivering financial savings and better technical expertise, although other factors that are not as critical are often delivered more successfully than anticipated. Service level improvements are a key area to focus on in the procurement model. Many respondents identified it as an objective but it in many cases it was not delivered, as was better management information which respondents believed could be improved. Transfer of risk and focus on core business were identified by fewer respondents as objectives but, where they were, had high achievement rates. Focus on core business was also often identified as an area not delivered by service partners. Innovation in service delivery and better management information were objectives only identified by a few and their achievement rates were also low. However quantitative feedback indicated that innovation is something organisations want, albeit it is not high on their list of priorities.

17 Page 17 How importance varies by service model Participants perceive that certain facilities management models are more effective at delivering particular goals, as shown in Figure Thirteen. For example, nearly half the participants perceive that the best way of achieving flexibility of service delivery is through an in-house delivery model. In addition, development of the facilities management team, communication and service quality are perceived as best delivered through an in-house model. Moreover, added value, innovation and ability to focus on core business are perceived most effectively delivered by a total facilities management solution, while access to technical expertise is best delivered through an integrated service model. Furthermore, any of the outsourcing models, from single service to integrated services and total facilities management, are all seen as equally successful at delivering value for money, improved management information and reduced cost. Figure Thirteen: Factors of importance by outsourcing model Importance by size When taking into account organisational size, a few aspects of service delivery emerge as more important than others, as seen in Figure Fourteen. Aspects such as communication, improved management information and flexibility in service delivery appear more important to largesized organisations. Small and mediumsized organisations appear to place more importance on reduced cost and the ability to focus on core business as important aspects of facilities management service delivery. All sizes of organisation place the greatest importance on service delivery, value for money and reduced cost. Figure Fourteen: Factors of importance by size

18 Page 18 Sainsbury s Interserve has renewed its contract with Sainsbury s three times across all six of Sainsbury s Central Locations, and five times across their retail estate, covering 275 stores and 7 distribution centres. Operating for the retailer since 2000, Interserve has continually evolved and developed their service delivery. This saw Sainsbury s benefit from 3.2 million of savings through moving to a total facilities management model as well as a further 0.5 million worth of savings through value added initiatives such as introducing new technology to mitigate risk and improve audit performance. Elsewhere, Sainsbury s has benefitted from Interserve s built environment capability through the delivery of additional projects. For instance Interserve has refurbished Sainsbury s HR Shared Services Centre located in Manchester, and has helped with a 5 million fit-out project in Coventry, as well as supporting Sainsbury s in achieving accreditation to the ISO health and safety management system.

19 Page 19 Service partner relationships of the future During qualitative feedback, the research also identified respondents thoughts and preferences in regards to the client / service partner relationship. The key considerations are that service partners must be flexible and able to adapt when situations change. They must also be able to support on the organisations' core business both in delivering the services the organisation requires and helping the organisation achieve corporate aims of reducing costs. Organisations are looking for companies to maintain quality services, whilst reducing costs either through, innovation, technology, sustainability or knowledge. They also require their chosen service partners to be open, honest and flexible, and understand their core business needs. They want suppliers with a proven track record, who are financially stable, willing to work in partnership and have the right culture to match that of the client. The messages from the respondents are that the client needs to be informed, take a strategic view and keep enough knowledge in-house to manage the contract. However it is important the key performance indicators and service level agreements are set up in a way that allows improvements to be measured fairly by all parties. Negotiation ahead of the contract is important to ensure both sides are clear about what the service partner can and cannot deliver. Service partners need to demonstrate that they can work in partnership with the organisation and this can be developed through relationship building in the early stages before the contracts are finalised. Both parties need to have a shared vision and the service partner needs to demonstrate that it understands the clients business and help it achieve not just the facilities management goals but also the goals of the organisation as a whole. The challenge for clients remains the trade off between cost and quality. Service partners need to ensure they can demonstrate that they are delivering value for money, over and above meeting more general objectives around sustainability and innovation. However clients want service partners to understand their core business and work with them to support their business. Outsourcing enables this more effective support as service matter experts can be brought in to an organisation to add value, innovation and expertise to help the facilities management department support its organisations core business. Challenges faced when outsourcing facilities management: Keeping costs down Changing legislation Lack of understanding of customer needs and their core operation Meeting both financial and quality standards Critical success factors for a positive client / service partner relationship Good communication between service partner and client Facilities management being involved at the strategic level in the organisation Both the client and facilities management partner need to understand how each side works and experience each other s role and support and work in partnership to achieve targets Ensuring the existence of an informed client management system and existence of clear KPIs Trust, honesty and performance A shared vision and objectives around a clear asset management strategy

20 Page 20 Appendix: Background data Interserve, the support services and construction company, commissioned Sheffield Hallam University to carry out research within the facilities management industry. The survey looked at drivers for facilities management procurement. Field work was carried out between September and November This survey has been conducted using a combination of online and telephone interviews administered via the Sheffield Hallam University s Centre for Facilities Management Development FM Networks and current and past students on its postgraduate programmes in facilities management. It was also publicised through i-fm.net and PFM s FM Innovation s. 130 participants completed the survey online and 5 telephone interviews were undertaken. All responses were anonymous and confidential. No weightings have been applied to the data. Appendix Figure A: Organisations according to sector Appendix Figure B: Respondents according to role Appendix Figure C: Respondents according to area

21 Page 21 Appendix Figure C: Organisations by number of employees Appendix Figure D: Organisations by facilities budget Appendix Figure E: Organisations by facilities budget and size

22 Page 22 About Interserve Interserve is a leading force in the support services industry, operating across the United Kingdom, Europe and the Middle East. We work with our clients to develop bespoke, sustainable support services solutions that maximise planned spending to deliver best value and drive real service improvements. Our people provide services to some of the UK s most important and business critical, government and commercial buildings, from government properties, hospitals, schools and colleges to corporate head offices, retail destinations, business parks, airports, industrial processing plants, power facilities and military bases. We offer a full range of services across all these facilities from front of house, catering, cleaning and security, to life cycle maintenance and energy management whilst ensuring service delivery quality and flexibility through our own directly employed staff. However we know that choosing a new service partner can be a risk, which is why our experience in TUPE transfers having managed the transfer of more than 20,000 employees and our commitment to developing all our employees wherever they are in the business, ensures that we are the trusted partner for all our customers. If you want to find out more about how Interserve can support you or about the findings of this research please contact us on or at Interserve specifically partnered with the Centre for Facilities Management Development (CFMD) at Sheffield Hallam University to undertake this research. Sheffield Hallam University is an academic centre of excellence that applies the latest thinking to develop facilities management knowledge, people and practice. The centre works in partnership with private and public sector organisations from a range of industries and sectors who are each interested in developing their facilities management provision.

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